To people like Varian, what happened at the Federal Trade Commission is an example of what should have been going on all over the country. In the mid-1980s, the FTC gave a personal computer to every staffer in the Bureau of Economics, its in-house economic advisory board. “The computers had two effects,” recalls a former FTC economist. “For the first three months, the economists spent long hours worrying about their fonts”-that is, about making their letters and memos look pretty. “Six months later, they got rid of the steno pool.”
For economists, this is a textbook example of increased productivity. The agency produced the same number of reports with fewer people, which means the per-capita production of economics was higher. (More precisely, this is an example of increased labor productivity; economists also use another, more complex measure, multifactor productivity, but for most purposes the two can be treated together.)
Spread throughout the economy, higher productivity means higher wages, higher profits, lower prices. Productivity increases aren’t necessarily painless, as the dismissed stenographers at the FTC found out. But history shows that workers displaced by productivity-enhancing technology usually find other, better jobs. In the long run raising productivity is essential to increasing the national standard of living. “In some sense,” Thurow says, “if you could only know one number about an economy, you’d like to know the level and the rate of growth of productivity, because it underlies everything else.”
After World War II, the United States spent decades with productivity growing at an average rate of almost 3 percent a year-enough, roughly speaking, to double living standards every generation. In 1973, however, productivity growth suddenly slowed to 1.1 percent, far below its previous level. Nobody knows why. “The post-1973 productivity slowdown,” says Jack Triplett of the Brookings Institute, “is a puzzle that has so far resisted all attempts at solution.”
The effects of the slowdown, alas, are well-known. At that slower rate, living standards double in three generations, not one. The result was stagnation. Wage-earners still won raises, but employers, unable to absorb the extra costs with higher productivity, simply passed the increase into higher prices, which canceled the benefit of higher wages. Unsurprisingly, economists say, the unproductive 1970s and 1980s were years of inflation, recession, unemployment, social conflict and enormous budget deficits.
In 1995, productivity changed direction again. Without any fanfare, it abruptly began rising at an annual average clip of almost 2.2 percent-a great improvement from the 1980s, though still less than the 1960s. At first, most researchers regarded the increase as a temporary blip. But gradually many became convinced that it was long-lasting. “It was certainly something we discussed a lot at [Federal Reserve Board] meetings,” says Alice Rivlin, a Brookings economist who recently left the board. “You know, ‘Is this increase real?’ By now, I think most economists believe it is.” The implications, in her view, are enormous: Renewed productivity growth means that more people are more likely to achieve their dreams.
Although Rivlin is co-leading a Brookings study to determine the cause of the new productivity boom, she and many other economists believe it is probably due to computerization. “Moore’s Law,” she says, laughing, “may finally be paying off.”
There are two reasons for this belief, says Alan S. Blinder, a Princeton University economist. First, the acceleration in productivity happened “co-terminously” with a sudden, additional drop in computer costs. Second, the coincidence that productivity rose just as business adopted the Internet “is just too great to ignore.”